Best Tips For Repairing Your Credit
If you’re looking for ways to repair your credit, you’re not alone.
According to the latest data report from the Federal Reserve Bank, Americans currently have over $804 billion dollars of outstanding debt.
So, what’s that really mean? While some people keep their credit in check, others aren’t as fortunate.
SStruggles due to the pandemic or even just overspending can quickly lead to financial ruin.
But it’s not all bad news. Even if you’re behind on your payments, there are ways to regain control of your debt.
Here's 5 actionable steps you can take to repair your credit.
Check Your Credit Report
Your credit report says a lot about you. So, it’s important to know if what’s being reported is accurate. Knowing your credit score gives you a general idea of creditworthiness.
However, that’s not always enough.
You also need to review your credit reports to identify potential errors.
The first step is ordering a free copy of your annual credit report. Request copies from all three credit bureaus: Equifax, Experian and TransUnion.
You can get all three at once or one at a time. Most creditors report to all three bureaus, so it’s better to download them together for comparison.
Credit-reporting errors are common. In fact, approximately 34% of Americans find at least one error on their credit reports, according to a Consumer Reports investigation.
Go over your reports with a fine-tooth comb. Make sure your personal information is correct and if not, update it immediately.
While having the wrong birth date or incorrect spelling of your name doesn’t affect your credit, it can make verifying your identity for future loans difficult.
Look at each account you listed on your reports. Verify that your payments are being reported correctly and on time. You should also verify that all of your accounts are open and haven’t been closed without consent.
It’s almost important to check your hard and soft inquiries.
Hard inquiries are inquiries that can impact your credit score. These appear on your report whenever you apply for a credit card or loan. They can drop your score by several points, so you need to keep those to a minimum.
Soft inquiries don’t impact your credit score. These are usually done to prequalify you for credit line increases and new credit offers.
If you do find any errors, you need to file a dispute. All three bureaus offer online dispute options to file your claim. It can take up to 30 days to investigate and remove any errors from your report.
They might also say that the reporting is correct, so be sure to submit any supporting documentation you have.
Set Up Credit Monitoring
Credit monitoring can also help you repair your credit. There’s a lot of services to choose from, all of which offer various levels of protection.
Some of the most popular ones are Experian Boost, Credit Karma, and Credit Wise by Capital One. Depending on your credit needs, you can opt for either free or paid services.
Debt Consolidation Services
If you have a low credit score or errors on your report, debt consolidation services can help. These companies will work on your behalf to help improve your score and consolidate your debt.
However, with so many credit repair companies claiming to be the best, it might be tough determining which are legitimate.
Some of the best debt consolidation companies include:
All three of the above-mentioned companies offer credit repair services. It’s important to note that credit repair is not the same as credit counseling.
While they will provide you with tips to manage your finances, their services are more about getting you back on track.
They create repayment plans with creditors, help remove errors on your credit reports and ultimately help you qualify for home loans or new lines of credit.
Pay on Time
Even if you can only afford the monthly minimum, always strive to pay on time. Your payment history accounts for 35% of your total credit score, so paying on time can make a huge difference.
If possible, set up all of your accounts on autopay. That way, you’ll never miss a payment.
If that’s not an option, you can always set it up through your bank and have a certain amount transferred with bill pay.
Most banks offer that service, so it’s just a matter of inputting the creditor, amount and date of transfer.
Lower Credit Utilization Score
Even though paying with credit is convenient, it can also lower your score.
Your credit utilization score is what lenders use to gauge your spending habits. Ratios less than 30% but more than 0% are considered excellent.
It’s as simple as using less while paying more.
You can improve your score by paying in cash and trying to pay more than the minimum payment due each month.
Pay Off Debt
There’s two kinds of debt: good and bad. Good debt has the power to make you money in the long run, like your mortgage. As you pay off your mortgage, you build equity in your home.
Your car payment and material goods are examples of bad debt. Their value depreciates over time and you never recoup the money you originally spent.
Credit card debt is another example of bad debt. While building good credit is important, it’s also possible to have too much credit. Simply put, you are approved for numerous lines of credit and now can’t pay them off.
To get things going in the right direction, you can use the snowball or debt avalanche method.
The snowball method focuses on the smallest balances first. Make a list of all your outstanding credit card debt. After you make the minimum monthly payment, take any extra money you have and put in towards paying it off.
Your goal is to pay off the balance, not the interest. Once you pay it off in full, move onto the next one.
The debt avalanche works the same, but in the opposite way. Focus on the largest debt first and work your way down to the smallest. Any extra money you have goes towards the principal, not interest.
Wrapping Things Up
Repairing your credit is possible; all it takes is a solid strategy and the desire to make it happen. Once you start seeing success, it’ll motivate you to do even more.
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